Shares of the cruise line slumped more than 4% in Tuesday trading after analysts at Morgan Stanley issued a downbeat note suggesting concern about a fourth-quarter slowdown in the cruising industry. Analysts cited hurricane season threats, higher fuel costs and a risk of overcapacity in slashing their earnings forecast for Carnival by 6% for 2018 and 11% for 2019.

The recent rally in oil prices paired with the strength of the U.S. dollar are a "double negative for cruise stocks," Morgan Stanley wrote. Analysts added that it's best to be "relatively cautious" on the space in light of increasing supply growth, slowing yield momentum and weakness in China and in the Caribbean.

Source: Morgan Stanley

But Carnival CEO Arnold Donald told TheStreet last month that "China is someday going to be the largest cruise market in the world." Donald added, "There's no question about that and the question is what role are we going to play and how are we going to participate."

Carnival stock has remained close to flat in the last year, down about 1.5% before Tuesday's decline. Shares slid 4.34% to $60.59 by the closing bell Tuesday. In Wednesday morning trading, Carnival stock slipped about 0.22% before trading closer to flat.

According to FactSet, analysts have an average price target of $76.75 for Carnival stock, implying about 28% upside for shares from their Tuesday levels. Morgan Stanley wrote this week that the stock is starting to look "relatively expensive."

Analysts at Morgan Stanley also slashed their outlooks for fellow cruise lines Royal Caribbean Cruises Ltd. (RCL) by 2% to 3% for 2018 and 2019, respectively, and Norwegian Cruise Line Holdings Ltd. (NCLH) by 1% for 2018. The downgrade sent RCL stock lower 4.09% and Norwegian stock lower 4.21% Tuesday. Both were lower again Wednesday morning.

Morgan Stanley's view of the industry is close to in line with the rest of Wall Street, which has shown recent caution on the cruising sector.

Norwegian CEO Frank Del Rio told TheStreet in May that Wall Street was being somewhat irrational in its critique of the sector, particularly with concerns regarding supply growth. "The supply growth is coming. There's no turning the ships back. It's what you do to drive demand to be able to absorb that supply," Del Rio said.

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